Simple Guide to Refinancing a Home Loan

Your home loan might have been perfect for you when you bought your house years ago, but is it still meeting your needs?

Over time, people may face changes in their financial situations, goals and priorities, and refinancing a home loan is one of the ways to help you get back on track. 

This post is a simple guide to refinancing a home loan. You may be surprised to learn how easy the process is and how much difference it can make in your financial situation.

 

Why Refinance?

Refinancing has several possible benefits, depending on your financial circumstances. For instance, if you acquired your loan when interest rates were higher, refinancing may allow you to significantly lower your monthly payments as well as the total amount you pay in interest over the life of the loan.

Or perhaps you need to access some of the equity in your home to fund remodelling or to take advantage of a new investment. Refinancing can also help you to tap into your equity for a variety of purposes. Another reason to refinance is to consolidate debts in order to pay them off more quickly and easily. 

Whatever your reason, you may be able to reach your long-term goals with a strategic refinance of your current home loan. Here’s the process:

 

1. Define Your Goals

Don’t jump into loan refinancing just because a friend told you it was a good idea; have a well-defined reason for refinancing. Talk with your wealth adviser about your current financial situation and how your home loan fits into your long-term plans.

For example, John Doe wanted to retire early, and he decided that paying off his mortgage early would help him to achieve that goal. Therefore, he refinanced his loan to a shorter term to take advantage of lower interest rates. Even though John’s monthly mortgage payment increased slightly, he was able to achieve his goal of paying off his mortgage quickly, and this critical step helped him to retire early.

Your own goals may be very different from John’s, and therefore, you may need a different kind of loan. Before you approach a broker about interest rates and terms, make sure you’re clear about your long-term goals.

 

2. Review Your Options

Once you’ve defined your goals, it’s time to discuss your options with a broker. You will likely have many options to choose from, including points to be paid, the length of the loan, fixed or variable-rate options, and cash-out loans.

 

3. Learn About the Costs

Refinancing a home loan doesn’t come for free, but the benefits may far outweigh the costs and you can speak to your broker about current lenders cashback offers.

 

4. Decide on Fixed or Variable Rates

Whether you want to use a fixed or a variable rate is one of the important decisions you’ll have to make early on in your refinance process. If you plan on staying in your home for a long time, it may be safer to get a fixed rate. If you want to access the lowest possible payments early on in the life of the loan, you may want to use a variable rate. Discuss these options with your adviser or broker.

 

5. Proceed with the Lender

Once your broker has found a loan that meets your needs, the lender will need to gather documentation about your home and finances. Ensure you always read documents provided to you carefully and consult your wealth adviser if you’re unsure about anything.

 

6. Settle and Enjoy the Benefits

After the settlement of your new loan, you’ll enjoy the benefits of having your mortgage aligned with your current financial goals. For more information about refinancing a home loan or to discuss our professional lending services, get in touch with us at Altus Financial today.